Pressing Forward Structural Reform with Joint Efforts

2017-07-25

Since the outburst of the financial crisis in 2008, three unexpected scenarios have emerged in global development. First, the world economic recovery has been much more difficult than most people expected. After the financial crisis, many people thought that the world economy would soon rebound in a relatively short period of time. Yet the reality is that following the financial tsunami in the United States, a debt crisis loomed up in Europe, while some developing countries were hit by economic recession. So far, the world economy has not forged a strong driving force for growth. Second, much beyond people’s expectations, various deglobalization voices can be heard incessantly. After the 1970s and 1980s, the swift move of globalization has effectively promoted the development of the world economy. As a result, it was generally believed that the trend of economic globalization was irreversible. However, after 2008, due to the fact that the economies of different countries failed to embark on a path of sustained recovery, the inter-country conflicts as well as the domestic inter-group conflicts, originally covered by the high-speed growth, have become more and more prominent. In such context, the anti-globalization drive has gained momentum. Third, the changes in the domestic political scenario in some countries are contrary to many people’s expectations. In face of the world economic slowdown and anti-globalization drive, people have hoped that politicians, especially those from developed countries could take rational and correct options, and continue to promote globalization and revitalize the global economy. But the Brexit referendum, the Italian referendum on constitutional reforms, the results of the US presidential election, as well as the current French and German general election outcomes all exceeded people’s expectations. These political changes mean that the politicians of different countries would face more and tougher setbacks if they want to take on rational and pro-globalization policy measures.

Overall, the "black swan" events with small probability have continued to pop up. But what is more serious is that if the number of such events becomes increased, they could evolve into the "gray rhinoceros" events with large probability such as serious geopolitical conflicts.

I. We need to take the initiative to address challenges with joint efforts.

In face of the challenges posed by uncertainty, how are we going to react: to sit back and wait passively, or to actively respond to the impact and take the initiative to break through the "tight encirclement" with a sense of duty and blaze new trials in development? Our answer is obviously the latter, namely we should plan actively and take a positive approach toward development.

History has proved that in face of difficulties and challenges, the results will be significantly different whether we choose to take the initiative actively or cope with the situation passively. If people could face up to uncertainties and take the initiative, that would allow them to reduce the probability of the occurrence of negative events while increasing that of positive events by eliminating unfavorable conditions and creating favorable conditions. China has rich experience in this regard. I remember that in the mid-1990s, in face of the difficulties in the development of state-owned enterprises (SOEs), instead of following some scholars’ advice to let it "run its course", the government formulated bailout measures for SOEs to shake off difficulty in three years and issued the CPC Central Committee’s Decision on Several Major Issues Concerning the Reform and Development of State-owned Enterprises, which laid the foundation for the revitalization of state-owned enterprises. The upbeat situation of the development of state-owned enterprises today would not be seen without the active reform of state-owned enterprises in the late 1990s.

Planning in advance is the key to taking the initiative. As a Chinese idiom goes, "preparedness ensures success and unpreparedness spells failure". There are always uncertainties in economic and social development, but it is not without rules to follow. To get out of the current development dilemma, the world economy must combine long-term goals with short-term measures, and make a coordinated planning for the future development.

There is no doubt that in the new era and against the new environment, various countries should plan for their own future development in light of the demands so as to solve the deep-rooted structural imbalance at the current stage of development. Today with the continuous progress of science and technology, the costs for trades and transportation continue to decrease, the global industrial division of labor becomes clearly defined, international trade and investment cooperation between countries have witnessed great development, resources, capital, labor, information and other factors of production enjoy more frequent cross-border flow. Consequently, the economic and social ties between countries have been tightened, and the destiny of people from different countries is becoming more closely linked than ever. The strategies and policy choices made by each country are having a broader impact than ever before whatever positive or negative spillover effects they might cause.

Therefore, in this context, any country, especially one with global influence, should balance the relationship between its own development and the development of other countries, as well as the relationship between the improvement of domestic welfare and the common development of all mankind. After the outbreak of the financial crisis, some major economies have made efforts to launch the quantitative easing monetary policies. These policies have imposed pressure on the appreciation of exchange rates to other countries, leading to a relative decline in the competitiveness of exports. Meanwhile, the flood of liquidity has been brought forth globally, with a large inflow of capital into the emerging market economies, increasing the risks of instability in the stock market and the real estate market in those countries. In recent years, some developed countries are gradually tightening their monetary policies and starting a new round of interest rates rise, and some other countries are being threatened by further recession. In turn, the economic difficulties of developing countries would exert a negative impact on the developed countries. Today, against the backdrop of economic globalization, the development of the developed and developing countries is by no means a zero-sum game. Instead, to a considerable extent, they stand together in weal or woe. According to the estimation by IMF (International Monetary Fund), if the economic growth of emerging economies drops by one percentage point, the economic growth of developed countries will decline by 0.2 percent percentage points. Therefore, various countries should not only plan for their own development, but also join hands to care about the global development and the shared future of the whole world. The global financial crisis in 2008 was caused by the subprime mortgage crisis of a certain country, and eventually the crisis evolved into a large-scale global economic recession over a long period. Despite a large number of stimulus policies adopted by various countries, the declining trend of global development was irresistible. Relevant research findings show that the essence of the problem is related not only with the internal system of various economies, but also with relevant global issues. In other words, the developed countries are dominating the higher ends of the value chain whereas the developing countries are always kept at the lower ends, resulting in the widening gap of development between the north and the south and increased regional conflicts, which not only restricts the markets in developing countries from expanding, but also bars the developed countries from enlarging the scale of overseas markets. To solve this issue, there’s an urgent need for various countries to strengthen cooperation and make co-planning, so as to optimize the order of global governance and make global development become more inclusive. In other words, we need to guarantee that both developed and developing countries could gain their due interests in the process of economic globalization. In addition, it should be noted that with the rapid technological progress and especially the swift development of artificial intelligence, people will encounter challenges not only at the economic level, but also at the social level, which also require various countries to make joint efforts to address these challenges.

II. China’s exploratory efforts made in improving global governance

In planning the future of the global development, the Chinese government has conducted active pilot practices and fulfilled its responsibilities as a country with a large population and a major economic power.

In March 2013, President Xi Jinping put forward the significant judgment that mankind has become a close-knit community with shared future. He also made further illustrations on this concept and proposed the co-construction of the One Belt and One Road Initiative. Particularly noteworthy, during the G20 Summit held in September 2016, China, together with other countries, outlined the G20 Blueprint on Innovative Growth, which advocates the deepening of structural reform, the upgrading of productivity and the encouraging of business startups through shoring up innovation, new industrial revolution, digital economy and the release of new economic potential. Meanwhile, it is clearly stated that efforts need to be made to support the developing countries to utilize the opportunities fueled by technological innovation, the new industrial revolution and the digital economy to formulate relevant strategies and plans to promote inclusive development

At present, the major difficulty in optimizing the global governance system lies in the fact that, on the one hand, with the change of patterns in the balance of economic powers between different countries, some developing countries are having increasingly strong demands on having a bigger say on global issues. While on the other hand, the pattern of interest formed under the original governance system is difficult to shake. In the course of optimizing the global governance system, some countries should give up the improper interests obtained from the old governance system, keep an eye on the common interests of mankind and create more institutional conditions for global development.

In terms of fleshing out the multilateral trade mechanism, various countries, especially big powers, must firmly uphold the authority of the World Trade Organization and continue to support its role in promoting global trade and investment. We must adhere to an open-oriented regional development and incorporate regional trade arrangement into economic globalization in the new era, but not make such regional trade become a supra-national and exclusive arrangement on a wider scale. In terms of the coordination of global finance, major powers should intensify cooperation and enhance the mechanism on monitoring, early warning and responding to global financial risks. Multilateral financial institutions including World Bank, Asian Development Bank and Asian Infrastructure Investment Bank should work more closely in the fields of information, capital and technology to play a more active role in balancing the development between the north and the south.

III. Focus on structural reform

At present, the structural reform is an important and urgent task for the world economy, as well as for the developed and developing countries including the emerging economies. Relevant countries should formulate and implement effective policies according to the nature and scale of structural conflicts in their own economies, and in light of their basic national conditions, economic system and the stage of development, in order to resolve the structural conflicts, shake off difficulties and seek new development so as to make their due contribution to the recovery of the world economy.

At present, China is striving to promote the supply-side structural reform, aiming at optimizing economic structure and building up a long-term mechanism with the supply structure better adaptable to the changes of demand, through cutting overcapacity, destocking, deleveraging, reducing corporate costs, shoring up weak spots and underlying institutional reforms. In 2016, China's structural reform achieved some initial results. In 2017, China will continue to deepen the supply-side structural reform in accordance with established deployment. It must be pointed out that China’s supply-side structural reform is not based on short-term policies, but is derived from the long-term goal of realizing the sound and sustainable economic development. It is an in-depth reform of the economic structure, with a focus on the systemic and institutional reforms relevant to the supply-side structure, as well as on the intensification of the adjustment of policies and regulations that hinder the decisive role of the market in the allocation of social resources. Such reform is more than a scratch of the surface and we need to be prepared for necessary hurts and heavy tolls. For example, in cutting overcapacity, we must be ready to face huge pressure of job-loss, with a huge amount of money to be spent for the placement of laid-off workers. In deleveraging, we must shoulder potential financial risks. However, these are the bills we have to pay for the success of the structural reform. We need to realize structural transformation sooner rather than later as the former structure cannot ensure sustainable development. This is like to cure an illness and in this case we would rather bear brief, sharp pains than lasting, dull ones.

To promote structural reform, enterprises should play a major role and in particular, multinational corporations should play a positive part. According to the 2016 World Investment Report issued by the UN Trade and Development Organization, from 1990 to 2015, the number of overseas employees of multinational corporations increased from 21.45 million to 79.51 million, and the total overseas assets increased from $ 4.6 trillion to $ 105 trillion. Multinational corporations are playing an increasingly important role in global production, technological progress, industrial revolution and balancing the development between the north and south, and are exerting a growing impact on the development of various countries. Multinational companies need to make full use of global innovation resources, enhance their capacity in technological innovation, develop the technology for the upgrading of global industries, and accelerate the application of their innovative achievements. At the same time, they need to use their productive advantages in transnational operations, and play the role of a "bridge" in policy communication and coordination with relevant countries. They also need to get deeply integrated with the economy of host countries, and play a unique role in the structural reform of the host countries.

In the structural reform, experts, scholars and think tanks can put their ability to good use. Think tanks should use their advantages in terms of their talents, knowledge and exchange platform, to conduct in-depth researches on the strategies and measures of resolving structural conflicts, and provide practical and feasible policy options for the governments.